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Sprint Corp. and T-Mobile US Inc.’s overlapping business in the prepaid phone market
could draw the attention of Justice Department officials examining their merger, industry
analysts and antitrust attorneys told Bloomberg Law.

Officials could zero in on how a Sprint and T-Mobile combination would affect customers
buying preset data plans. Enforcers will look broadly at how the proposed merger would
shift the landscape of national carriers from four major players to three, with AT&T
Inc. and Verizon Communications Inc. in the top two spots. The prepaid market is a
narrower market that has been a particular focus for Sprint. The merger is expected
to be announced in the coming weeks.

Antitrust officials examining a merger’s impact look at how it would affect different
types of customers. If there is a risk of harm to any distinct consumer group, the
government can step in to block the deal. That was the case in 2011 when the Justice
Department sued to block AT&T Inc. and T-Mobile’s proposed merger. The government
identified two markets where it said competition would be harmed — mobile wireless
telecommunications services generally and mobile wireless telecommunications services
provided to businesses and government customers.

When it comes to Sprint and T-Mobile, regulators “could very well view the prepaid
phone plan customers as a separate market in this case,” said Jennifer Rie, a Bloomberg
Intelligence analyst. “It would depend on whether the evidence and their economic
analyses support this segment as a separate market,” she told Bloomberg Law. “I certainly
think this could be an issue.”

The prepaid cellphone is a good deal for people who don’t have much money or established
credit. Customers pay a set rate for a certain amount of data, and the phone dies
when they reach the limit. The sector has become more competitive in recent years,
dominated by Sprint, T-Mobile, and AT&T. It’s difficult to break out the customer
numbers, but analysts interviewed by Bloomberg Law estimated that a combined Sprint
and T-Mobile would own more than half the prepaid market.

T-Mobile announced in an Oct. 23 earnings report that it added 226,000 new prepaid
customers, “led by the success of MetroPCS.” The carrier counts about 29 percent of
its approximately 70.9 million monthly customers as prepaid buyers.

Sprint has about 8.7 million prepaid customers, which make up 21 percent of its total
subscribers, according to the company’s most recent earnings report.

A Separate Market?

Stephen Calkins, an antitrust law professor at Wayne State University, said the prepaid
market “was not a big factor” in the AT&T-T-Mobile complaint, but the market has shifted
since them. “That’s a separate issue that would have to be looked at today,” he told
Bloomberg Law.

The antitrust division will have to make an “empirical inquiry” into whether the prepaid
market can be considered a separate market, James Cooper, an antitrust law professor
at George Mason University, told Bloomberg Law. The division’s teams of economists
and lawyers will examine company and industry data to make that determination.

Much of Sprint and T-Mobile’s business strategy centers on the typical subscriber
market because that’s where it draws most of its profits. But over the last year,
Sprint has eyed the prepaid market for growth after it saw losses in that space the
year before. In response, Sprint beefed up its prepaid offerings with the relaunch
of Virgin Mobile in June to compete with T-Mobile’s MetroPCS and AT&T’s Cricket. Sprint
also owns the Boost Mobile prepaid brand.

To contact the reporter on this story: Liz Crampton in Washington at
lcrampton@bna.com

To contact the editor responsible for this story: Fawn Johnson at
fjohnson@bna.com

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